Credit Connect

Ofgem has announced that around one million households will save £120 a year on average when it extends its prepayment safeguard tariff for more vulnerable people this winter.

Ofgem will also work on extending price protection to at least a further 2 million vulnerable households for winter next year once the timing of the Government’s price cap is confirmed.

Following the Prime Minister’s announcement last week, Ofgem will work with the Government so that all those on standard variable and other default tariffs receive price protection as soon as possible if legislation is in place.

The Government’s plan to provide price protection to all households on default deals will reassure them that the price they pay reflects the underlying costs of supplying their energy.

People will be able to save even more money by switching to a better deal. Ofgem will consult on the design of the safeguard tariff for default deals while the Government’s draft bill progresses through Parliament.

In the meantime, suppliers must step up efforts to get more of their customers on default tariffs onto better value deals. Some suppliers have recently come forward with proposals to do so but more action is required.

To help with this, Ofgem is introducing new rules today to allow suppliers to roll customers coming to the end of their contracts onto another fixed deal instead of a poor value standard variable tariff.

Ofgem will be carefully monitoring to ensure any new default deals do not become another way to penalise customers who rarely switch.

Under a separate initiative to boost confidence in the switching process, Ofgem is proposing that consumers would receive automatic compensation if their switch goes wrong.

Ofgem is continuing work to implement the remedies put forward by the Competition and Markets Authority last year to make it easier for people to engage in the market.

Dermot Nolan, chief executive of Ofgem, said: “Ofgem shares the Government’s concern that the energy market is not working for all consumers and is determined to reduce the detriment suffered by those overpaying for their energy, particularly those who are vulnerable. The Government’s proposed bill to provide price protection to those who remain on poor value default deals, such as the standard variable tariff, will give these households peace of mind about the price they pay for their energy.

“In the meantime, we expect suppliers to do more to get customers on poor value default tariffs onto better deals. We also expect suppliers to co-operate when Ofgem initially introduces a safeguard tariff for around 1 million vulnerable households this winter.

“The introduction of further price protections will give time for Ofgem’s reforms to work and for smart meters to be rolled out across the country as we move towards a smarter, fairer, more competitive market.”

Gillian Guy, chief executive of Citizens Advice, said “The proposals announced by Ofgem today should serve as a warning to energy firms that they can no longer get away with ripping off their poorest customers. We have long been calling for a safeguard tariff to cap bills for the poorest pensioners and families as a first step, alongside action to protect the millions of other loyal customers paying over the odds on default tariffs.”

“It is right that whilst the government works to tackle the cost of default tariffs through legislation, Ofgem is taking action to make energy bills more affordable for the poorest loyal customers – and looking to extend the safeguard tariff to more of the worst off as soon as possible. Energy firms must continue to take responsibility for getting more of their customers onto better value deals over the next few months.”

Citizens Advice’s analysis has found that over the last year dual fuel bills for people on the standard variable tariff rose by £89 – three times the rate of inflation.